FTC Staff Supports NACHA’s Proposed Rule Changes on Electronic Payments

The Federal Trade Commission staff filed a comment with NACHA (The Electronic Payments Association), supporting its proposal to strengthen its rules to monitor bank debit transactions conducted through the Automated Clearinghouse (ACH) Network.

The FTC’s comment focuses on NACHA’s proposed changes to how it monitors returned ACH transactions.  A high level of returned transactions might indicate problematic business practices, and high rates of returns coded as “unauthorized” by the consumer, which can trigger inquiry, investigation, or enforcement proceedings.  NACHA proposes to lower the return rate threshold that could trigger such inquiry for unauthorized debits from one percent to 0.5 percent.  NACHA also proposes to establish for the first time return rate thresholds of 3 percent for administrative returns (for example, debits returned for invalid account numbers) and 15 percent for overall returns.

The FTC staff comment supports NACHA’s proposal to strengthen its risk management oversight to reduce the incidence of returned ACH debits, including those that have been most closely associated with consumer fraud.  FTC staff supports NACHA’s proposal to lower the threshold for unauthorized returns.  This change would provide a useful tool for payment processors, banks, and NACHA to identify conduct that falls substantially outside the norm that legitimate businesses experience.  The comment supports NACHA’s proposal to set an administrative return rate threshold trigger, because excessive administrative returns may signal problematic business practices, such as the use of lists of purchased consumer account numbers.  Further, the comment supports NACHA’s proposal to look more globally at all returned transactions and to monitor total return rates.  FTC staff cautions, however, that perpetrators of fraud are increasingly employing techniques designed to mask and artificially reduce their actual return rates to avoid scrutiny, a factor NACHA should consider in setting appropriate thresholds.   Finally, the comment urges NACHA to make clear that its thresholds do not “represent an acceptable level for returns,” but rather a signal that enhanced scrutiny of a merchant’s business is warranted.